I just stumbled across Raph Koster's Small Worlds presentation, and it's very insightful. However one particular comment in the Playerkilling section jumped out at me:

"Given an aggressive group, kick them out of your game. Otherwise, they will dominate via genocide."

I've observed this behaviour a few times, and have even been part of it. Back in 1994/1995 I was the joint leader of the most aggressive clan on Realms of Despair - we racked up more PKs than the other 12 clans combined, and thoroughly dominated the game.

In retrospect, it's clear we were a liability for the mud, but fortunately we weren't kicked out. Instead, several of the admin tried creating their own clan to fight back against us, using enhanced alts to give themselves the edge. This approach was poorly received by the playerbase - it was too blatant, too much of a deus ex machina, and it had undesirable repercussions.

However their next solution was superb. The admin located and approached disgruntled factions within the clan, and lured them away with the promise of having their own clans. They broke our monopoly not with the stick, but with the carrot. We turned our attention to the new splinter groups - the "traitors" who had abandoned us - but unlike the other clans these new ones knew how to fight, and in particular they knew how to fight us. We lost our dominance, and eventually the clan faded away entirely.

This solution also shaped my own designs. If aggressive players form into a large dominant group, I don't kick them out, but instead find a way to break them up into smaller groups that compete with each other. My current approach to clans was even built with this concept in mind - rewards for the top clans to encourage players to band together, combined with a strictly enforced membership hierarchy to discourage clans from growing too large. When a clan does start to grow too large, it invariably reaches a point where some members break away to form their own rival clan, because they benefit more from being the big fish in a medium-sized pond than a small fish in a big pond.

My current approach to clans was even built with this concept in mind - rewards for the top clans to encourage players to band together, combined with a strictly enforced membership hierarchy to discourage clans from growing too large. When a clan does start to grow too large, it invariably reaches a point where some members break away to form their own rival clan, because they benefit more from being the big fish in a medium-sized pond than a small fish in a big pond.

I think your approach is basically correct. Give people an incentive to band together, but also an incentive to fragment. One thing that GW2 clans lack that I think could provide for endless possibilities for fragmentation is a way to forcefully move upward in the hierarchy, displacing those above you. If this upward movement requires support from other members, so much the better. Then you'd have natural factions forming within large organizations. A group of people back an ambitious individual, who either successfully displaces someone above him, or fails.

Whichever way that turns out, some people will be unhappy about it, which is pretty much true of anything, but especially so with politics.

So your upward-mover does one of the following:

1) Displaces someone above him who was undeserving (good)
2) Displaces someone above him who was still popular (causes tension, and a possible splinter group supporting the displaced individual)
3) Gets shot down, and no one cares (fine)
4) Gets shot down, causing the clan to alienate his supporters (causes tension, maybe a splinter group forms to support him)

I'm a big fan of backing politics whenever possible. People are endlessly fickle and disagreeable, and will gladly cut off their nose to spite their face.

A possible downside to this approach is that political pressure will be too high for people to band together at all. I'm not sure how likely this is in practice. People will probably just select groups based on what amount of politics they are comfortable with.

Usurpers would be able to take over the wealth/status/records/populace of successful clans, which is a nice incentive over forming a new one, and they might inadvertently destroy their parent clan in the process.